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Goldman Sachs and Daiwa Securities SMBC are this month set to lead a Â¥627bn (â¬4.51bn) capital increase for Sumitomo Mitsui Financial Group, Japan's third-largest bank.

The banks will sell up to 520,700 Sumitomo shares between January 23 and January 25, with the proceeds going to repay Japanese government loans, as well as strengthening the bank's capital base.

The placement will consist of 400,000 treasury shares and 80,000 new shares. The banks also have an over-allotment option of 40,700 additional new shares. In total the deal will increase Sumitomo's share capital by 1.7%.

Sumitomo plans to repay up to $2.6bn (€2.2bn) in funds it received in a government bail-out by the end of March. It wants to repay all debt owed to the government by 2008.

Three years ago, Goldman made a ¥150.3bn investment in Sumitomo, which was once of the US bank's biggest external shareholders with a 10% stake. Sumitomo sold down the stake following Goldman's flotation in 1999.

Goldman made a $1.5bn gain last year from its investment in Sumitomo's convertible preferred stock.